JC Penny (JCP) management has missed an interest payment and may file bankruptcy.
music selection: “You And Your Friend” — Snake River Conspiracy
I originally bought CUSIP 708130AD1 on 19SEP2019 for 89.912. I sold at 97 on 15NOV2019 making 61.33% annualized return after commissions and interest. The bond then fell back into buy range. I bought again on 21NOV2019 for 92.912. I expected a quick flip when the bond traded close to par again. Instead, COVID-19 has knee-capped a company that had good (not strong, but still good) cash flows and could service its bond.
Today, management delayed making an interest (coupon) payment on a different bond maturing in 2036. They have a 30 day grace period to make good, else they will file Chapter 11 and reorganize. I am hopeful that they will be able to reopen some stores at the end of April and see a rush of pent up demand fatten cash flows and persuade them to make good on their commitment to the 2036 bond holders.
I am however prepared for the possibility that management will choose to reorganize. I previously calculated a liquidation value of about 55 cents on the dollar for JCP bonds. That was a liquidation analysis and it is near certain the company would instead reorganize. After that, much is up to a judge. I would expect to get some mix of new bonds with a later maturity, high coupon, and shares. This will most likely have a value greater than liquidating the company (else the judge will order liquidation). Existing shareholders can expect to be wiped out.
I will probably end up losing money on this bond in the long run.
Devour your prey raptors!